Edmonton Commercial Real Estate - Dumb Money or Smart Money?

The current edition has a front page article entitled "Invest wisely: don't follow the "dumb" money". Now I don't know about you, but a headline like that sure caught my attention. I think the headline is pretty self-explanatory so I will get straight to the point after this quote from the article. Speaking of the frenzy around income trusts in 2007 and Finance Minister Flaherty's tax amendment blocking the loophole, he says "Yet even before Mr. Flaherty's move, I knew the sector was ready for a hit. I'd been tracking the inflow of capital by retail investors, the so-called "dumb money" (if you're a retail investor, how do you feel now?) into new issues, as well as into mutual funds holding income trusts. So when I saw money pile into income trusts, I knew the good times would soon be over. As a result, I cashed out, thereby saving my investors a lot of grief."

I love the next line; "Still is it really fair to call investors who follow the crowd dumb? In a word, yes. Not only are they usually the last to get into a particular sector, they're usually the last to get out as well."

Well.

Remember he said that, not me. But my next question is the million dollar question (literally). Is investing in Edmonton now "following the dumb money". Well I think that I'd be pretty dumb to say yes to that question in public, but honestly I don't think so. I think investing in Edmonton is still pretty smart. But....I think the small investor does need to be careful. Let's talk about this. Firstly,

We can analyze economics to death and produce flashy full colour charts, spreadsheets and prognostications, but really, one thing tells me more than all the analyses in the world...where is the big money going? The big money is more likely to be the smart money than us little guys' miniscule forays into the world of commercial real estate. I'm talking players who invest in the hundreds of millions of dollars. And the good news is that a lot of that money is flowing into Edmonton. If Edmonton is good enough for the big boys, it's good enough for me.

So I'm safe to plunge all my money into Edmonton?

Well I wouldn't go that far. There are a small but growing number of institutional investors becoming wary of investing in Edmonton and that is understandable. Valuations are growing, rents are increasing, and new projects are underway every day. So small investors need to be wary in this kind of market. A hot market brings a lot of speculators and a lot of unsavoury individuals. Yes, things are going up and up. And what goes up....

Well you'll just have to wait (not long) for my next blog post to find out. I will discuss the boring details behind what my thoughts are for Edmonton real estate in the coming few years.

Well hello again my friends. It has been a few months since I have written a blog post. Business concerns have taken up a lot of my time for the last 5 months but things should be easing back to normal and I can now bore you to tears again with my favorite subject…economics!!

And what better way to get back into the swing of things than with some positive economic indicators – but first a Battle of Alberta, Edmonton vs Calgary, on Consumer Price Index.

Consumer Price Index

I guess depending upon how you look at it, both Calgary and Edmonton can claim victory on this one. Alberta’s overall CPI in February was 2.4% while Edmonton’s dropped from 2.2 to 1.9% and Calgary’s stood at a whopping 2.9%.

Lower gasoline costs and moderately higher accommodation costs helped keep Edmonton’s inflation rate down but a tightening residential vacancy rate will likely drive rents higher in the near future. Price increases in other components may drive Edmonton’s CPI as high as 2.5% in the coming months.

Housing Starts

New home construction has been slower in Edmonton for a few months but picked up in February with 363 single-detached starts, up 25% from January and 32% from February 2013. Continuing gains in employment and in-migration, coupled with low mortgage rates have been supporting the growth.

Employment Gains

The working-age population and participation in the labour force have both been increasing as of late, contributing to a higher number of job seekers in Edmonton. This growth in employment has helped boost Edmonton’s wages by 4% over the last year. This should contribute to increased spending in housing, clothing, automobiles and appliances.

The growth in labour force statistics have been service oriented, pointing to a move away from construction and manufacturing and toward services. Edmonton has had a labour shortage as of late and these increasing numbers are a reflection of that, as more workers help to address the shortage.

Residential Construction Permits at Highest Level in Decades

Needless to say, all this activity has resulted in Edmonton’s residential building permits posting one of the highest monthly gains in Canada, along with Toronto and Vancouver (not Calgary J). Residential permits in January 2014 came in at just a tad under $400 million with all permits (residential and non-residential) reaching $523, a 34% increase over December and a 39% increase from January of 2013.

Needless to say, 2014 is expected to be another good year in the Edmonton area. It’s nice when the good news just keeps on coming, isn’t it?